01—Abstract
Summary
Summary of the 10-K filed July 22, 2014. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. reported fiscal 2014 (year ended May 31, 2014) results showing growth across its payroll and Human Resource Services (HRS) businesses.
Total service revenue rose 8% to $2.48 billiona, with payroll service revenue up 4% to $1.6 billion and HRS revenue up 18% to $878.9 million (12% excluding the PEO direct cost adjustment). Net income increased 10% to $627.5 million, and diluted earnings per share rose to $1.71 from $1.56. Operating income increased 9% to $982.7 million.
Client retention reached a record approximately 82% of the beginning-of-year client base, and the client base grew to approximately 580,000. Cash flow from operations was $880.9 millionb, and the company held $936.8 million in cash and total corporate investments with no debt. Dividends paid totaled $510.6 million, representing 81% of net income.
The company repurchased 6.2 million shares for $249.7 millionc during the year and approved a new $350 million repurchase program expiring May 31, 2017. Management guided fiscal 2015 total service revenue growth of 8% to 10% and net income growth of 6% to 8%.
Key risks cited in the filing include changes in government regulations, health care reform impacts on the PEO business, health insurance and workers' compensation cost trends, the effect of low interest rates on interest earned on client funds, security breaches, and co-employment liability. The company stated that it believes resolution of outstanding legal matters will not have a material adverse effect on its financial position or results of operations.
02—Key points
Key Highlights
- Total service revenue increased 8% to $2.48 billion; total revenue reached $2.52 billion.
- Net income rose 10% to $627.5 million, and diluted EPS increased to $1.71 from $1.56.
- HRS revenue grew 18% to $878.9 million, while payroll service revenue grew 4% to $1.6 billion.
- Client retention reached a record approximately 82%, and the client base grew to approximately 580,000 clients.
- Cash flow from operations was $880.9 million; the company had $936.8 million in cash and total corporate investments and no debt.
- Dividends paid were $510.6 million (81% of net income); $249.7 million was used to repurchase shares, and a new $350 million buyback program was approved in May 2014.
- Fiscal 2015 guidance projects total service revenue growth of 8% to 10% and net income growth of 6% to 8%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed July 22, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $2.52B$2.33B | +8.3% |
| SG&A Expenses | $803.70M$750.10M | +7.1% |
| Operating Expenses | $1.54B$1.42B | +8.1% |
| Operating Income | $982.70M$904.80M | +8.6% |
| Interest Expense | $1.10M— | — |
| Net Income | $627.50M$569.00M | +10.3% |
| EPS (Basic) | $1.72$1.56 | +10.3% |
| EPS (Diluted) | $1.71$1.56 | +9.6% |
| Shares Outstanding (Basic) | 364.50M363.80M | +0.2% |
| Shares Outstanding (Diluted) | 366.10M364.70M | +0.4% |
05—Questions
Frequently Asked Questions
How did Paychex perform financially in fiscal 2014?
Paychex reported total revenue of $2.52 billion, up 8% from $2.33 billion in fiscal 2013. Operating income rose 9% to $982.7 million, and net income increased 10% to $627.5 million, or $1.71 per diluted share.
What drove growth in fiscal 2014?
Growth was driven primarily by client base growth, revenue per check, and checks per payroll. HRS revenue grew 18%, aided by demand for Paychex HR Services (PEO) and retirement services. The company also cited a new health care offering within the PEO, which changed how certain direct costs are presented in service revenue but had no impact on operating income.
Does Paychex carry debt, and how does it return capital to shareholders?
The company reported no debt as of May 31, 2014. It paid $510.6 million in dividends, quarterly dividends were raised to $0.35 per share in July 2013, and it repurchased $249.7 million of stock during fiscal 2014. In May 2014, the Board approved a new $350 million repurchase program expiring May 31, 2017.
What are the main risks identified in the filing?
Risks include changes in government regulations affecting payroll tax and benefits services, the impact of health care reform on the insurance and PEO businesses, changes in health insurance and workers' compensation rates and claims trends, low interest rates reducing interest earned on client funds, security breaches or system failures, and potential liability from co-employment in the PEO business.
What does Paychex expect for fiscal 2015?
The company guided to total service revenue growth of 8% to 10%, payroll service revenue growth of 3% to 5%, HRS revenue growth of 16% to 19%, and net income growth of 6% to 8%. It expects operating income, net of certain items, to be 37% to 38% of total service revenue, with interest on funds held for clients relatively flat.
06—Continue